Third-Quarter Growth Revised 2.6 Percent Higher but Less Than Expected

U.S. economic growth was a touch higher than previously estimated in the third quarter, but below expectations as a rise in the pace of inventory accumulation was offset by downward revisions to consumer spending, a government report showed on Wednesday.

Gross domestic product growth was revised up to an annualized rate of 2.6 percent from 2.5 percent, the Commerce Department said.

Economists had expected GDP growth, which measures total goods and services output within U.S. borders, to be revised up to a 2.8 percent pace. The economy expanded at a 1.7 percent rate in the second quarter.

But data so far suggest growth accelerated in the fourth quarter and will remain supported in 2011 by an $858 billion tax deal, which will help plug the gap from the fading boost from the rebuilding of inventories by businesses and winding down of the government's $814 billion stimulus package.

The tax plan, widely viewed as a second fiscal stimulus for the economy, is seen complementing the Federal Reserve's program to buy $600 billion worth of government bonds to shore up the recovery.

Third-quarter growth estimates were revised to reflect a $121.4 billion increase in business inventories rather than the $111.5 billion rise reported last month. Inventories added 1.61 percentage points to GDP growth.

Excluding inventories, the economy expanded at a 0.9 percent pace rather than 1.2 percent.

The increase in consumer spending was revised down to a 2.4 percent rate from 2.8 percent rate. Consumer spending accounts for more than two-thirds of U.S. economic activity and contributed 1.67 percentage points to growth in the July-September period.

Still, consumer spending during the quarter was the fastest since the first quarter of 2007 and was a pick-up from the second quarter's 2.2 percent pace.

Government spending was trimmed to show a 3.9 percent rate rise rather than 4.0 percent. There were also slight downward revisions to business investment as spending on equipment and software estimates were lowered.

Business spending increased at a 10.0 percent rate instead of 10.3 percent. That was slower than the second quarter's brisk 17.2 percent rate. Spending on software and equipment grew at a 15.4 percent rate instead of 16.8 percent.

Import growth was unrevised, but exports were a bit stronger than previously estimated, leaving a trade deficit that lopped off 1.70 percentage points from GDP. Residential investment was little changed, contracting at a 27.3 percent rate, instead of 27.5 percent.

The government also revised after tax corporate profits to show a 0.2 percent rise in the third quarter — the weakest reading since the fourth quarter of 2008 — instead of 1.0 percent, after increasing 3.9 percent in the April-to-June period.

The report also showed no inflation pressures in the economy. The Fed's preferred inflation measure, the personal consumption expenditures price index, excluding food and energy, rose at an annual rate of 0.5 percent instead of 0.8 percent.

That was the smallest increase since records began in 1959. The index increased 1.0 percent in the second quarter.